By Tom Kleckner

With its electricity demand projected to grow 3 to 4% annually, the expected retirement of 10 to 15 GW of fossil plants, a commitment to add 1 GW of wind power annually and off-peak prices as high as $65/MWh, Mexico presents an appealing target to generation developers.

And Mannti Cummins wants a piece.

A certified public accountant by training, Cummins now calls himself a wildcat wind-energy developer, having developed more than 1,000 MW and $2.2 billion worth of wind projects in the U.S. and Mexico.

“Get in early, get in cheap,” he said in describing his strategy. “Hopefully, it’ll be a good market position with relatively few dollars spent.”

For now, however, Cummins and other developers are finding that a lack of transparency and uncertain rules are making their efforts anything but a sure bet.

Cummins, who grew up near the Gulf of Mexico, has made his home in Mexico for the past decade and speaks Spanish fluently enough to have completed a course in energy law from Mexico’s Escuela Libre de Derecho law school. He helped develop that country’s first two managed health care insurance firms and served as their CEO.

In his spare time, Cummins has been an avid surfer. He’s also been known to play Billy Idol’s “White Wedding” on his accordion.

Having made his mark in industries on both sides of the border, Cummins has jumped headlong into the Mexican energy market, which opened to national and international wholesale competition earlier this year.

Focus on Renewables

For the time being, much of the market’s focus is on renewable energy. Mexican President Enrique Peña Nieto in June joined President Obama and Canadian Prime Minister Justin Trudeau in pledging to generate half his country’s power from clean-energy sources by 2025, accelerating its 2013 pledge to produce 35% of its energy from renewable sources by 2024.

Cummins notes that Mexico’s definition of “clean-energy sources” does not include natural gas or nuclear energy. The Ministry of Energy’s National Electricity System Development Program projects Mexico will need more than 20,000 MW of clean energy over the next 15 years, part of an estimated $62.5 billion in private investment in the energy industry by 2018.

“Every year, Mexico has … to add 1,000 MW of wind power,” said Cummins, currently director of Energia Veleta, S. de R.L. de C.V. (which translates as wind vane energy) in Monterrey, Mexico.

Market Phase-In

Mexico’s wholesale market will be implemented in phases through 2018. It consists of short-term markets (day-ahead, hour-ahead, real-time and ancillary services), medium-term auctions (three-year energy and capacity contracts), long-term auctions, financial transmission rights auctions, a capacity-balance market and the 20-year clean-energy certificates — instruments equivalent to 1 MWh of energy from clean sources — market that Cummins and other developers have their eyes on.

In the first clean-energy auction in March, about 80 firms offered more than 200 bid packages, with contracts awarded to Enel Green Power, Acciona, Jinko Solar and other players.

Cummins said state-owned Comisión Federal de Electricidad (CFE), Mexico’s only utility, saw some solar projects bid as low as $40/MWh, lower than the utility had expected. All told, CFE awarded 5.38 million MWh of contracts, with almost 75% of those going to solar developers. A second auction will be held in September.

Because bidders were required to have a financial guarantee of about $40,000/MW to participate, Cummins lamented, the wildcatters were priced out.

“I wanted to bid in March, but I couldn’t find anybody to put up the guarantee,” Cummins said. “That would have required about $2 million, which I ain’t got.”

Cummins was riding in a Mexico City taxi as he spoke, on his way to a meeting with a fourth-level executive in the country’s energy department to discuss timetable issues. The man he was going to meet “is the guy that turns the crank,” the person who implements policy directives, Cummins said.

In order to place financial guarantees for the September auction, Cummins needs an interconnection, which requires a bond guaranteeing that upgrade costs will be paid, and a generation permit from Mexico’s Energy Regulatory Commission. And he must be ready to turn in reams of paper.

“Coordinating calendars for other permits … makes it tricky,” Cummins said. He planned to complete the paperwork by Aug. 29. “The [first official] deadline is Sept. 1. That’s a slim margin for error.”

It may not matter. Cummins said in a subsequent email exchange that an “unexpected change” in the auction’s evaluation criteria “most likely knock[s] us out as contenders in this auction as well.”

Growing Pains

Growing pains are to be expected in any immature market, but those pains have been amplified by Mexico’s emergence from a state-run monopoly. Vertically integrated CFE has long been the country’s only electric utility, much as Pemex controls the country’s oil industry. It is only now being restructured into generation, transmission and distribution firms.

“The market is open, and it has a single participant … CFE, which was the single participant before it opened,” Barbara Clemenhagen, Customized Energy Solutions’ vice president of market intelligence, explained at an Infocast conference in March. “If the statements for the initial 48 days are indicative, there’ s not much transparency and liquidity in the market.”

Clemenhagen said CFE is participating as both a buyer and a seller in the clean-energy auctions, covering the demand of its regulated clients and load centers. The utility was the only buyer for capacity, energy and clean-energy certificates in the last two auctions but was not allowed to sell because its generation companies do not exist yet.

El Centro Nacional de Control de Energía (CENACE), the grid operator, was an operating division of CFE, the vertically integrated national electric utility. CENACE became an independent system operator in August 2015.

CFE is also being restructured into different generation, transmission and distribution firms.

“The same guys who are on the CFE payroll in the morning are with CENACE in the afternoon,” Cummins said. “The independent part needs some time to set, since most CENACE folks were transitioned from similar posts in CFE.”

Grupo Fenix, which works with rural communities in Nicaragua to promote renewable energy, reforestation and sustainable development, also qualified as a market participant but has chosen not to participate.

“They pulled this thing together so fast, all the loose ends aren’t tied up,” Cummins said. “How long did it take ERCOT to get [its competitive market] going? The Senate bill passed in 1999 and it took 10 years to decide what was up.

“Wildcatter guys like us, we don’t mind navigating in an uncertain environment. But when you start putting hundreds of millions of dollars down, you better have everything locked up pretty good.”

Cummins said he would like to see more clarity in the market’s interconnection rules, the source of many of his current headaches.

“There needs to be coordination between the auction process and the interconnection process,” he said. “In ERCOT, you file your study and ERCOT comes in with theirs. There’s a date certain your study has to be done. Not in Mexico. That process and the auction timetables sometimes just don’t line up.”

The wildcatter would also like to see clean-energy generators create bilateral contracts outside the auction process with consumers, who will be required by Mexican law to buy 5% of their load from clean-energy sources in 2018.

“The rules in that market are uncertain and not definable for the amount of risk [involved],” Cummins said. “Those rules have not been ironed out.”

Compounding the problem, Cummins said, is the lack of a mechanism to balance load with generation and the requirement that private-generation companies purchase clean-energy certificates — even though clean-energy projects have yet to be built.

Clemenhagen said even when the rules are finalized, a lack of transparency makes it difficult to know who changed the rules and why. As of this spring, only 13 of 30 expected operating procedures and manuals had been released, and only one (the long-term auctions market) had been finalized.

“She’s not the only one [who feels that way],” Cummins said. “There are inconsistencies in the rules, gaps in the rules, downright confusion in the rules. The sheer volume of the rules … you have to have a person, or two or three, just to read the darn documents on a daily basis.

“It’s a haul, especially in a market like Mexico’s, where you have plenty of unknown unknowns,” he said.

Still, Cummins is making a go of it. His 148.5-MW Tres Mesas wind farm in the state of Tamaulipas, owned and operated by Oak Creek de México, is scheduled to be operational by the end of the year.

He also has four other projects in development in four states, Baja California Sur, Jalisco, Sonora and Zacatecas. That includes a 50-MW wind farm in Baja Sur, an island grid where all generation is supplied by fuel oil.

“We’re in so deep now,” Cummins said, “we don’t have a choice but to accomplish the goal.”